Running mate of the New Patriotic Party (NPP), Dr Mahamudu Bawumia has warned that the banking industry will be hit with a crisis if government fails to settle debts owed Bulk Oil Distribution Companies (BDCs) soon.
“The BDC debt is a real threat to the banking system. Our banking system will suffer a crisis if we do not take care. The banks are exposed to the BDCs and some of the banks will collapse if the BDCs don’t pay soon,” he said.
Government is currently auditing a $600 million claim presented by 17 BDCs as outstanding debts.
The amount represents forex losses and under-recoveries before the full implementation of deregulation.
The breakdown is as follows: forex under-recoveries account for $530 million, price under-recoveries of GHC46 million, as well as interest of GHC414 million, which accrued on price under-recoveries since 2011, known in banking as Real Value Factor.
Majority of the BDCs contracted loans from commercial banks in the country to facilitate their operations but have failed to pay up the loans due to government’s indebtedness.
The development has been attributed as one of the causes of the significant rise of bad loans on the books of banks recently.
Earlier, the CEO of the Chamber of Bulk Distribution Companies (BDCs), Mr Senyo Hosi, told Citi Breakfast Show that majority of bulk distributors of petroleum products will be forced to halt operations by the end of 2016 if government fails to pay debts owed them.
“We have liquidity heavily stacked. A number of BDCs are not operational. We are using the private sector to fund government fiscal policy indirectly. That is what we have been doing.
“The debt at the bank is, well, you know about it already. Most of the NPAs are significant, and non-performing loans are significantly BDCs’ debt. Some of them have not yet been provisioned for. So you have a broader institution of the entire economy. If the banks are going to go down, we will struggle.”
Mr Hosi stressed that government is working closely with government to clear all debts owed BDCs.
The Bank of Ghana, in its first financial stability report for 2016, revealed that bad loans on the books of commercial banks in the country increased by 14.9 per cent to 4.52 billion cedis in 2015 against the 2.72 billion cedis recorded in 2014.
Players in the banking industry have described the development as troubling.
CEO of Fidelity Bank, Edward Effah told Citi Business News at the bank’s AGM that, “We have also seen a deterioration of loans from the BDCs; this is because government owes the BDC foreign exchange losses and under-recoveries.
So the BDCs are unable to pay the loans, but I believe this is being resolved through the energy sector levy act, which has been passed, and we hope that by the end of the year, a lot of progress would have been made towards this resolution.”
Deputy CEO of Cal Bank also expressed similar views recently.
The development has led to some of the banks threatening to slash, and in some cases cut, loans to BDCs.
HFC bank at its AGM early this year told shareholders it may be forced to cut giving out loans to such companies due to their indebtedness to the bank.
Speaking on the Citi Breakfast Show last Friday, Dr Mahamudu Bawumia warned a number of banks risk collapse if the BDCs’ debt is not settled soon.
“I am very worried and concerned because of the former position I held and this BDC issue is a major threat to the banking system and it should be addressed or a number of banks will collapse because of the debt,” he said.
Government last month promised to clear the debts by the end of June 2016, which were accumulated over a period of two years.